Call to tighten UK’s new property law to crack down on ‘dirty money’

Posted On: February 14, 2016

Rules should require foreign owners of prime London homes to come clean about beneficiary owners, say anti-corruption groups
Large parts of London’s Baker Street, including the Beatles store, are owned by offshore trusts.

New laws that aim to stop the UK being a magnet for money launderers – by forcing the owners of properties to reveal their identities – should be applied retrospectively, leading anti-corruption organisations whose work has strongly influenced the government are saying.

The call comes as the government prepares to launch its long-awaited consultation on a new law that would prohibit anonymous trusts from owning property in the UK unless they reveal the identities of the beneficiaries. Many offshore trusts currently list anonymous companies as their directors, which makes it impossible to establish who really owns a property.

Under the new laws, as proposed by anti-corruption groups, the government would have the power to recover a property if a trust based in a tax haven failed to declare the identity of its true owner. But the multibillion-pound question now is whether those laws would apply only to future property acquisitions.

“What we would like to see is legislation that would apply both retrospectively and prospectively,” said Chido Dunn, senior campaigner at Global Witness. “Any solution that looks only at the future will mean a huge part of the problem gets left alone. The legislation needs to have teeth and not be subject to exceptions that could be exploited. We need to ensure that any dirty money that has ended up in the England and Wales property market will be found out and the assets returned to whoever they were stolen from.”

It is estimated that some £120bn-worth of UK property is owned by offshore entities. Much of this has been paid for with “dirty money” laundered on behalf of Russian oligarchs and corrupt African officials who have plundered their home countries of cash and assets.

“By allowing dirty money to come into the UK property market, we are facilitating corruption overseas,” said Dunn. “It causes poverty and takes money away from essential services like education and health. It helps create global instability, which is bad for national security. Dirty money is also having an effect on property prices, making it less realistic for your average person to afford a home. There has been a property bubble [in London]; prices for a two-bed starter flat have gone up exponentially in the past five years and part of that bubble is down to dirty money coming in.”

Research by Transparency International has found that some 36,000 properties in London, mostly at the luxury end of the market, are owned by offshore corporate entities. The problem is particularly acute in affluent London boroughs, where anti-corruption activists now offer guided “kleptocracy tours” of luxurious properties bought by anonymous offshore companies for cronies of Russian president Vladimir Putin.

It emerged last year that large parts of Baker Street, including the freeholds of the Beatles and Elvis Presley stores, were owned by offshore trusts, although the identities of their ultimate beneficial owners – the people who make money from them – remained opaque.

Since the government announced last summer that it would be consulting on new laws to combat money-laundering, prices of super-prime properties in London have slumped. While much of this is likely to be down to the deteriorating economic climate, there is speculation that some property owners are selling up in anticipation of the new measures.

Full details on how the new laws will work are likely to be provided when the UK hosts a global anti-corruption summit in May. The government has tried to put pressure on Britain’s overseas territories to be more transparent, but with little success.

Nick Maxwell, head of advocacy at Transparency International, said it was time for the government to follow words with deeds. “If the prime minister is going to be credible at the international anti-corruption conference in London, then the UK needs to clean up its own backyard and end secrecy and money-laundering through UK property,” he said.